Insurative specializes in helping qualified clients obtain sizable life insurance policies while preserving their liquidity. We work with carriers, lenders, advisors, and clients to leverage the power of premium financed life insurance to structure custom solutions that work for the client’s wealth and estate strategy.
An affluent client has many different reasons for looking at innovative approaches to insuring their business or family’s financial future through premium financed life insurance. Every client is different and their unique circumstances require each case to be designed to suit their needs. For example, let’s take a look at a case where a premium financed life insurance policy helped a client obtain a $3 million dollar Indexed Universal Life policy.
- 61 years old
- Policy Flexibility
- $3 million dollar death benefit
- Maintain as much liquidity as possible
- Collateralize the loan using a separate, existing life insurance policy
- Protect her estate from additional estate taxes
Jane is 61 years old. She is a retired businesswoman with a sizable estate, including invested assets that she does not want to liquidate. Like many people in her situation, Jane would like to have the peace of mind that her family’s finances will be secure should anything happen to her. She is also a philanthropist. In addition to leaving her wealth to her family, she is passionate about her charitable contributions and wishes to donate $1 million dollars to these endeavors.
In order to protect her family’s future finances and gift her charitable donation, Jane works with her advisor and elects to look into a life insurance policy that will allow her to leave a sizable endowment to her heirs while gifting another $1 million dollars to her favorite charitable foundation. In order to maximize flexibility, an Indexed Universal Life policy would allow for growth in the cash value of the policy over time, a tax-free death benefit, and leverage in the cash value. Additionally, the policy will be held in an Irrevocable Life Insurance Trust (ILIT) so that the benefits of the policy are not figured into the estate.
The Lender, the Premium, and the Collateral
A $3 million dollar IUL policy for a person of Jane’s age comes with a significant premium. In order to maintain the policy, the yearly premium due could be well over $100,000 dollars. Since Jane wants to retain her liquidity, she opted to work with Insurative to structure a premium financed life insurance solution.
Insurative was able to help Jane structure a loan arrangement with a lender in order to pay the bulk of the premium due each year. While the premium on the policy was over $191,000 dollars, Jane contributed only $25,000. Additionally, she was able to further collateralize the loan using the cash value of an additional policy that she already owned.
As you can see in the table below, Jane’s $3 million dollar IUL policy has a cash value that exceeds the loan balance after 5 years, while Jane pays less than 14% of the total premiums out of pocket and collateralize the loan with an existing asset. When the loan matures, Jane may have the option to either renew the loan or use the cash value of the policy to repay it.
|Beginning Loan Balance||$717,729||$965,358||$1,196,359||$1,426,672||$1,659,684|
|Loan Interest Deferred||$49,408||$63,334||$62,614||$53,319||$88,399|
|Ending Loan Balance||$941,692||$1,205,536||$1,435,699||$1,655,188||$1,929,047|
|Policy Cash Surrender Value||$899,755||$1,161,755||$1,395,779||$1,651,399||$1,977,205|
|Additional Policy Collateral Value||$119,926||$126,160||$128,283||$133,789||$139,474|
Since Jane was able to purchase a significant policy while paying only a fraction of the premiums, she is able to help her heirs cover the costs of the estate taxes while still contributing $1 million dollars to her charity. She is able to retain significantly more liquidity that can be used for other investments, assets, and living expenses. As the policy was placed into an ILIT, the value of her taxable estate was not compromised by the policy itself, and the intent of the benefits is protected as well.
Premium financed life insurance solutions require expertise and knowledgeable guidance to structure and maintain. At Insurative, we work with clients to understand their financial goals and create policies and loan arrangements that benefit their overall strategy. It is a complex process that requires diligence and experience in crafting a premium financed solution. Insurative invites clients and their advisors to inquire about our offered premium financed loans, life insurance policies, the necessary requirements, and the process to get started.